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WSJ: How Cashews Explain Globalization

This profile by Bill Spindle and Vibhuti Agarwal appeared in the Wall Street Journal this morning (Friday, December 1st, 2017). They examine the history of the international trade in cashews, starting with large farms in Kollam, Kerala, India employing vast hordes of low-cost workers in the late 1920s, and continuing to the present, where automated factories in Vietnam are able to process more than 10 times the volume of cashews per employee, as compared with the old manual approach.

The local (communist) government in Kollam passed laws with the intention of protecting cashew jobs. But these laws also prevented automation, and so the cashew economy in Kollam has declined relative to Vietnam.

An excerpt from this WSJ piece:

In Kollam, having achieved domination of the global cashew trade, political leaders discouraged mechanization and the job losses that would entail.

Private processors were inhibited from aggressively automating by local laws that prevented them from laying off workers and thus denied much of the cost savings and efficiencies more machines would have brought.

Government policies vexed matters further. In a bid to protect cashew growers and expand the domestic crop, India’s central government in 2006 imposed a 9% tariff on imports of raw cashews. Kerala’s state government bestowed a 35% pay increase on workers in the industry. They now make 350 rupees a day, or $5.40. That fulfilled a campaign promise made by the winning political party during the last election.

The result has been disaster for Kollam. Private processors have moved operations to other states in India, often just across the border from Kerala, where wages are lower and they can mechanize factories.

Kerala state government-controlled companies, which cannot move production, simply operate in the red.

The average Capex employee worked 165 days last year compared with 200 days five years ago, the company says. With the mandated 35% raises, the company, in other words, is paying the average worker 22% more to produce 18% less.

Earlier this year Capex couldn’t afford to buy raw nuts and had to shut down for weeks. To trim its workforce, Capex says it hasn’t hired new workers in more than five years. Through attrition, it now employs 3,500, half its workforce in 2010. Its goal of protecting jobs has backfired badly.

Capex says it has done its best to preserve jobs given government wage policies.

India’s processing of raw nuts stagnated last year at 1.5 million metric tons, while its kernel exports fell by 38% to 82,302 metric tons, according to India’s ministry of agriculture.

Meanwhile, Vietnam processed 1.4 million metric tons of raw cashews, more than double the amount five years earlier, according to the Ministry of Agriculture and Rural Development. It doubled exports of kernels over the same period to 348,000 metric tons.